IFIEC EUROPE – International Federation of Industrial Energy Consumers IFIEC Back-up material (not necessarily shared by all sectors) 1 ECCP Meeting, EU

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

ECCP Meeting, EU ETS Review, 22ECCP Meeting, EU ETS Review, 22ndnd May 2007 May 2007

Back-up info, some views and experiencesBack-up info, some views and experiences(not necessarily shared by all sectors)(not necessarily shared by all sectors)

Applicability and practical aspects of Applicability and practical aspects of Performance-based allocationPerformance-based allocation

Vianney Schyns, IFIEC EuropeVianney Schyns, IFIEC [email protected]@usgbv.com

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ContentsContents

1. Number of benchmarks

2. Transaction costs & complexity

3. Setting the benchmark below average performance

4. Technical definition all energy carriers

5. Benchmarks in a direct emissions scheme

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Pareto: few activities have major coveragePareto: few activities have major coverage

Netherlands: almost 100 benchmarks already definedNetherlands: almost 100 benchmarks already defined

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High transaction costs often mentioned in literature

Transaction costs lower in practice

• Typical consultancy costs: € 25-40,000 per benchmark• Higher cost first time complex benchmark• So 100 benchmarks cost say € 3-4 mln• “Verification Bureau”, NL say < € 1 mln for 100 benchmarks (each 4 years?)

• Excl. verifier, for NL only: say € 5 mln for 4 x 75 Mton = < € 0.02/ton CO2

Determination of benchmarks cheaper on EU scale Additional: annual costs of monitoring & verification

Complexity often mentioned as problem Defining new benchmarks needs great care – technology expertise Practical principle: keep it simple – ignore secondary effects Once defined rather straightforward

Transaction costs and complexityTransaction costs and complexity

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Benchmark data of plants under the scheme (now EU)

Benchmark between average & best performance, e.g.

Benchmark = WAE – CF x (WAE – BP)

• WAE = Weighted Average Efficiency• CF = Compliance Factor, to comply with total cap

• BP = proven Best Practice, proven means actual measured operational data (or rather BP Group, for extra stimulation of innovation)

Formula coincides with EU ETS Directive Annex III (3), average emissions and achievable progress for each activity

Industry most likely opposes following alternatives Dutch/Flemish worldtop 10% – too short allocation, unstable

outcome shape benchmark curve + incomplete participation Related only to BP (BP + X%) – too short allocation, contra-

incentive to improve BP, effectiveness & innovation

Possible feasible benchmark formulaPossible feasible benchmark formula

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Benchmark = WAE – CF x (WAE – BP)Benchmark = WAE – CF x (WAE – BP)

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Benchmark takes account of all energy carriers (1)Benchmark takes account of all energy carriers (1)

Productionplant

Feeds

Steam

Natural gas ?Other fuel ?

Electricity

CO2 ?

Product(s)

Many energy functions can be done either with:• Steam, or• Electricity, or• Natural gas or other fuel

Benchmark takes this into account:Normalised calculation to (total)primary energy – or total CO2

Benchmark for only fuel is meaningless

Benchmarks for manufacturing and (related) utility plants

Examples: chemical plants, refineries, paper plants, etc.

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Benchmark takes account of all energy carriers (2)Benchmark takes account of all energy carriers (2)

Furnaces withheat recovery

to steam

Feeds

Methane from feedstock

CO2

Separations withhigh power

compressors

Simplified scheme steamcracker

2/3 of the investment

Separation train can be:• Efficient, with net-export of steam of whole cracker• Inefficient, steam import• Both can be with the same direct emission of the cracker itself

(ethane,LPG,naphta,gas oil,etc.)

Power train can be:• Steam turbine driven• Electric motor driven• CombinationsHigh influence onelectricity & steam balance, direct emissions elsewhere

(ethylene, propylene, etc.)Products

Steam recovery

Electricity Steam

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Benchmarks in a direct emissions scheme (1)Benchmarks in a direct emissions scheme (1)

Allocation = direct emission – emission {total plant – total BM}

Productionplant

Feeds

Steam

Natural gasOther fuels

Electricity

CO2

Product(s)

Site utilities have also benchmarks

Example:

• Net-import of secondary energy carriers:

70 – {120 – 100} = 50Plant worse than benchmark

Further examples:

• Zero net-import:

120 – {120 -100} = 100Plant worse than benchmark

• Net-import:

70 – {90 – 100} = 80Plant better than benchmark

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Benchmarks in a direct emissions scheme (2)Benchmarks in a direct emissions scheme (2) Easy inclusion in an ETS

No conceptual problem in a direct scheme and no legal problem with Directive, on the contrary

Allowances according to deviation with benchmark In formula:

A = RDE + RSE – Σ production x (REE/RCE – benchmark) x CCF

• RDE = Realised Direct Emission (ton CO2)

• RSE = Realised Sequestered Emissions (ton CO2)

• REE/RCE = Realised Energy (or CO2) Efficiency (GJ/ton product or ton CO2/ton product)

• Benchmark = benchmark energy (or CO2) efficiency

• CCF = CO2 Conversion Factor (= 1.0 in case of CO2-benchmark)

Note: Process emission is in this view included in the Best Practice

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Benchmarking in the product chainBenchmarking in the product chain Benchmarking provides incentives in the whole product chain …

Electricity andheat

generation

Industrialmanufacturing plant

with use of electricity and heat

Fuel

Electricity

Product

Heat, fromCHP or fromboilers

Fuel

… the efficiency ofthe production ofelectricity & heat

… the efficiency of the use of (fuel), electricity & heat

Feed

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Benchmarks need great careBenchmarks need great care

Productionplant

Feeds

Steam

Hardly or zero fuel

Electricity

Hardly or zero CO2

Product(s)

Present Dutch formula is incorrect Allowances = HE x G x E x C HE = historic emissionsG = Growth FactorE = Energy Efficiency(benchmark/actual energy use)C = Compliance factor to remain within total cap

Formula becomes meaningless – even introduces gaming – in case of significant import of secondary energy carriers (utility boilers & CHP are rightfully separate), for example:

HE (= ~ zero) x E = ~ zero

Other effectiveness’ shortcomingsMaximisation E (110%)Minimisation E (85%)

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IFIEC EUROPE – International Federation of Industrial Energy Consumers IFIEC Back-up material (not necessarily shared by all sectors) 1 ECCP Meeting, EU